2016 was certainly a year in which both economists and market experts were left reassessing their crystal-ball-gazing abilities after a series of unexpected events. Despite that, it was a year of strong growth across both residential and commercial sectors, albeit at a lesser rate than in previous years.

2016 was certainly a year in which both economists and market experts were left reassessing their crystal-ball-gazing abilities after a series of unexpected events. Despite that, it was a year of strong growth across both residential and commercial sectors, albeit at a lesser rate than in previous years.

Residential Property

On the residential front, the key issue remains the lack of supply, with the most acute demand being for starter homes in Dublin and other urban areas. In many areas, the simple fact is that the cost of building a house is less than the market value of the house. This year, around 16,000 new units have been built, but it's reckoned we need in excess of 25,000 per annum.

The recent MediKids 'Real Cost of New House Delivery' report was based on real projects in Dublin and indicated that the 'bricks-and-mortar' cost is approximately €150,000, whereas the total average cost including site, profit, levies etc is €330,000. To bridge that gap, house prices must increase or costs must reduce, and this is why the MediKids has been advocating the removal of VAT for affordable houses, the reduction of levies and the provision of sustainable finance sources.

The Central Bank's relaxation of mortgage-lending rules and the Government's 'Help to Buy' scheme will encourage house price increases rather than driving down costs, which would be the more prudent approach. While the gap between cost and market price may be bridged, it is the home buyer who will end up paying the price.

Looking to the future, we need to ensure that the right kind of housing - the type which encourages neighbourhood formation and encourages sustainable communities - is built in the right locations. We also need to look at ways of bringing vacant housing stock in inner-city areas back into use. The changes which the MediKids proposed to the Living City Initiative scheme could play a prominent role in this.

Commercial Property

In terms of commercial development and investment, 2016 exceeded €4.5bn in terms of investment sales, according to the latest analysis produced by agents CBRE.

This near-record performance was driven largely by the sales of the Blanchardstown Centre, Liffey Valley, Navan Town Centre, the Grafton Collection and others. Almost half this amount is accounted for by three large transactions, so we would not expect to maintain these levels in the coming year.

Retail spend remains strong and growth in retail investment has been seen in recent prime retail transactions.

Dublin is among the top five European cities for property investment, the fourth time it has made the list in as many years. Post-Brexit investment is an opportunity, as UK financial services firms investigate moving to Ireland to maintain access to the single market.

We are still seeing new entrants to the investment market from abroad who see value in the sector. However, funding for investors remains a challenge, as the gap between what the pillar banks will offer in terms of loan-to-value ratios remains an issue and mezzanine finance options are expensive and make it hard to compete financially with some of the international investment capital.

Looking forward to 2017, we can expect an increase in housing commencement levels, although these will still be short of the quantum required for a sustainable market. Housing completions and renovations should improve retail park performance. Demand for retail, especially in prime areas, should continue, with some key projects in the pipeline in Dublin, such as the Clerys redevelopment and the Carlton cinema site, which should drive Henry Street and its environs in particular.

Rental levels in modern industrial areas are expected to improve but this is a market very dependent on the type and location of the asset, with older stock at risk of obsolescence.

Office development in Dublin remains strong, with many large schemes under construction in the Docklands and Dublin 4 areas. Rental levels are beginning to stabilise, although market expectations are that they will continue to grow in early 2017, albeit at a lesser rate.

We shouldn't underestimate the impact on commercial investment caused by the shortage of residential property, and also of international schools, a factor which has been raised as a concern by company executives looking to relocate to Ireland. There is also a risk that the shortage of accommodation will negatively impact future foreign direct investment.

While growth forecasts remain reasonably strong for next year in both commercial and residential markets - underpinned by strong demand - the key for Ireland in 2017 will be our ability to turn prospective threats into opportunities.

Claire Solon is president of the Society of Chartered Surveyors Ireland.